Unless proper action is taken the Greek debt-to-GDP ratio could soar to 200 percent in the next two years, the IMF had warned European leaders ahead of last Sunday’s negotiations with the embattled nation.
“Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far,” the International Monetary Fund said in a memorandum sent to the creditors last week, the Financial Times reported on Tuesday.
The Europeans, above all Germany, have adamantly opposed a debt “haircut” or reduction in principal, and debt relief is not part of the accord signed by the creditors and Greece early Monday. The pact requires Athens to undertake further austerity in a nation already struggling with growing poverty and unemployment of nearly 26 percent.
The IMF declined to respond when EFE asked for comment about the story in the Financial Times. The memo was drafted barely two weeks after the IMF said in a published document that the ratio of Greek debt-to-gross domestic product would peak at 177 percent in 2017 before beginning to decline.
While the earlier study forecast the ratio would drop to 142 percent by 2022, last week’s memo cited a figure of 170 percent seven years out. Greece’s debt-to-GDP ratio was 127 percent at the outset of the crisis in 2010. Since then, creditor-mandated austerity policies have coincided with an economic contraction of 20 percent. Possible solutions suggested in the IMF memo include a “very dramatic extension” of the repayment schedule, entailing a “grace period” that would effectively exempt Greece from paying interest or principle on Eurozone loans until 2053.
The Financial Times pointed out that IMF rules bar the fund from contributing to a bailout of a country whose debt is “deemed unsustainable”. In light of those rules and the findings outlined in the memo, IMF participation in the third Greek rescue may be doubtful, the newspaper said. German Chancellor Angela Merkel insisted on continuing IMF involvement in Greece as a condition for the latest bailout, according to the Financial Times. (IANS)